MPC not worried about the stronger-than-expected slowdown of economic growth

MPC statement without substantial changes

As we expected, the Monetary Policy Council has left interest rates unchanged today (the reference rate amounts to 1.50%). In the statement after the meeting, the Council repeated the view that "the current level of interest rates is conducive to keeping the Polish economy on a sustainable growth path and maintaining macroeconomic stability”. Like in November 2019, the Council noted that the economic outlook remained favourable, and GDP growth, despite the expected decline, would continue at a relatively high level in the coming years. The statement also repeats the assessment of the economic outlook for Poland: “at the same time, there remains uncertainty about the scale and persistence of the slowdown abroad and its impact on domestic economic activity”. Like the month before, the Council expects that "inflation - after a temporary rise in 2020 Q1- will stay close to the target in the monetary policy transmission horizon” (2.5% +/- 1 pp).

MPC not worried about the stronger-than-expected slowdown of economic growth

During the conference after the MPC meeting, the NBP Governor, A. Glapiński, repeated the view he had voiced earlier that interest rates would remain unchanged until the end of his term of office. In his opinion, most MPC members are now supporting the stabilization of interest rates. Present at the conference MPC member R. Sura and outgoing MPC member J. Osiatyński were also emphasizing that there was no need to change interest rates in the coming months.

As we expected, a part of the conference was dedicated to the disappointing structure of economic growth in Q3, which points to a marked slowdown of investment and consumption growth. According to the NBP Governor, the slowdown of investments growth has resulted from lower dynamics of public investments due to the end of the “investment peak’ in local governments caused by the election cycle. In his view, weaker economic growth in Poland results from external factors, including, in particular, the slowdown of economic growth in Germany. J. Osiatyński also noted the fact of slower growth of corporate investments but in his opinion “a remedy for investments cannot be found in monetary policy instruments”. In his opinion, the current level of interest rates is not a barrier to corporate investment growth. In our view, the MPC members’ remarks at today’s conference indicate that the Council would be inclined to ease the monetary policy only amid a sharp decrease of GDP dynamics to a level significantly below the one forecast in the November NBP projection (see MACROpulse of 6/11/2019)

Interest rates unchanged at least until the end of 2020

Today's remarks of MPC members support our scenario, in which NBP interest rates will remain unchanged at least until the end of 2020. The expected by us accommodative monetary policy of the ECB (another deposit rate cut, continuation of the quantitative easing program) is consistent with this forecast. In the next MACROmap we will discuss at greater length the risks to our scenario of interest rates.

In our view, the statement after the MPC meeting and the remarks of the NBP Governor at today's conference are neutral for PLN and bond yields.